Question

Cara wrote a put option contract on EZ stock with an exercise price of $40 per share and an option price of $.65 per share. Today, the contracts expire and the stock is selling for $34.30 a share. What is the net profit on this investment? Ignore trading costs and taxes. Multiple Choice $63.50 −$505.00 $635.00 $50.50 −$635.00

Answer 1

Put Option is the right to sell a share at a specified price on a future date

The option is exercisable at the option of the option holder

Since the Exercise price is higher than the market price ob maturity, the option holder will exercise the option and sell the share at $40

Net profit for Cara = (34.30-40)+0.65

= -$5.05 per share

if there are 100 shares in the contract, the net profit on this investment = −$505.00